Hedgehog (Hh) proteins function as morphogens and play critical roles in pattern formation and cell growth control. Dysregulation and dysfunction of the Hh signaling pathway induces diverse types of cancers. The seven-pass transmembrane protein Smoothened (Smo) is required in both insects and mammals for transduction of the Hh signal. Our strategy is to use Drosophila as a simple and genetically tractable model system to explore the mechanisms of Hh signal transduction by the receptor complex. The long-term goal of our research is to elucidate how Hh signals are sensed and transmitted to control downstream biological events that ultimately govern cell growth and patterning. Although many components in the Hh pathway have been identified, how the Hh signal is transduced through Patched (Ptc) to Smo is still unclear. We have discovered that Smo activation requires phosphorylation by multiple kinases, including protein kinase A (PKA), casein kinase 1 (CK1), casein kinase 2 (CK2), and G protein-coupled receptor kinase 2 (Gprk2), and that phosphorylation leads to increased Smo cell surface levels and signaling activity. We show that Smo transduces Hh signals by directly recruiting a downstream Fused-Costal2 (Fu-Cos2) complex, and that Fus- Cos2 protein complex promotes hyperphosphorylation of Smo, uncovering a feedback mechanism essential for optimal Hh pathway activation. Furthermore, we have identified protein phosphatase PP4 as a negative regulator of Smo. Results from our studies have suggested that the cell surface accumulation and intracellular trafficking of Smo play critical roles in regulating Hh-induced Smo activation. However, many questions persist regarding the mechanism controlling Smo localization and trafficking. To begin address these questions, we have recently discovered that the deubiquitinase USP8 promotes Smo signaling activity by preventing Smo ubiquitination and regulating Smo subcellular localization. Combined with the preliminary studies in the project, our findings provide new tools and hypotheses for investigating the mechanisms of Smo signaling. In this project, our central hypothesis is that Smo activation downstream of Hh is tightly controlled by its subcellular localization, in which a novel kinase and small molecules promotes Hh signaling by enhancing the cell surface accumulation of Smo whereas ubiquitin inactivates Smo by promoting Smo endocytosis and degradation. We will use a combination of genetic and biochemical approaches in three Specific Aims: 1) To determine how a newly identified kinase regulates Smo phosphorylation and basolateral membrane localization; 2) to investigate the molecular mechanisms by which small molecules activate Smo in response to Hh stimulation; 3) to determine how Hh regulates the ubiquitin-mediated endosomal sorting of Smo via a novel E3 ligase of Smo.